China in Africa: The Real Story

Thanks for all your excellent articles and The Dragon's Gift - my
understanding of Chinese involvement in Africa has been significantly
improved. However, regarding this article (n.b. my article on The Economist) I wanted to question one
comment on the Sicomines deal in DRC. You say "the Congo
Sicomines project, which is financed by non-concessional loans from
China Eximbank."
However, SAIIA Johanna Jansson's detailed paper on the Sicomines deal (http://www.saiia.org.za/occasional-papers/the-sicomines-agreement-change-and-continuity-in-the-democratic-republic-of-congo-s-international-relations.html)
implies that the final version
of the deal does comply with OECD-DAC ODA definitions:

pg. 12 The OECD–DAC classifies a loan to a developing country as official
development assistance (ODA) if it is: provided by official agencies,
including state and local governments, or by their executive agencies;
... is administered with the promotion of the economic
development and welfare of developing countries as its main objective;
and ... is concessional in character and conveys a grant element of at
least 25 per cent. The loans extended by means of the Sicomines
agreement are provided by China Exim Bank, which is
owned by the Chinese government and thus to be seen as an official
agency. The credit line’s main objective is to finance post-conflict
reconstruction in the form of infrastructure construction and refurbishment, which is to be considered
promotion of economic development. The third and last element of
OECD–DAC’s ODA definition is the grant element. This is a way to
calculate that the cost for the loan is low enough – that
it is concessional.38 The loan conditions provided in the original 2008
agreement did not meet the requirements for concessionality. However,
in the revised 2009 version, the interest rate for the infrastructure
loans was reduced from 6.6% to 4.4%.39 Currently,
the grant element is estimated by the IMF and the World Bank to be at
least 42%, which far exceeds the 25% minimum level required by
OECD–DAC.40 This means that in its revised form, the loans extended
under the Sicomines framework comply with the OECD–DAC’sdefinition of ODA.

Could you comment further on this difference? I would be very interested to hear your thoughts.

Here are my thoughts. The finance does not qualify as ODA. The main reason is that although the finance was (supposed to be) extended by an official executive agency of the Chinese government, China Eximbank, it is not China Eximbank that agreed to change the interest rate. Rather, the implementing consortium of companies agreed that if the (variable) interest rate from China Exim Bank, which was set at LIBOR plus 100 basis points, rose above the rate of 4.4% where it was when the agreement was signed, they would pay the difference. This was a business risk they undertook, not a foreign aid transfer.

The Chinese consortium agreed that if the bank interest rate on the loan (LIBOR plus 100 basis points) rose higher than the rate of 22 April 2008 (about 4.4 per cent), the Chinese consortium would be responsible for the difference.

Interestingly, the financing that we thought had been lined up for this project appears to be less firm than we all thought. According to Johanna's latest research, as of December 2012, China Exim Bank has still not released any money, and it is increasingly looking as though they may not finance this project. The project sponsors have been shopping the project around to other banks.